Colin Was a Professional Classical Guitar Player Until a Motorcycle

question 73

Multiple Choice

Colin was a professional classical guitar player until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier) and started a small shop to make and sell Spanish guitars.The guitars sell for $700 and the fixed monthly operating costs are as follows: Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and that anything past that point was pure profit.
Colin wishes to earn $4,000 of operating profit each month.Calculate the number of guitars Colin will have to sell to achieve the target profit.

• A)39 guitars
• B)33 guitars
• C)15 guitars
• D)18 guitars

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Definitions:

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate if the stock is undervalued or overvalued.

Analytical Tools

Instruments or techniques used to analyze data or financial information, often for business or economic forecasting.

Financial Statement

A formal record of the financial activities and position of a business, individual, or other entity, typically including balance sheet, income statement, and cash flow statement.

Days' Sales Uncollected

A financial ratio that indicates the average number of days it takes a company to collect payment after a sale has been made.